Excerpt:.....principle of the law of the charity that a trust is not charitable unless it is directed to the public benefit. 36) :these are private rights and duties and have no public element, except the interest that the community has in the harmonious and efficient operation of its industries and commerce and in the securing of good and safe conditions of labour. 749 of [1953] 1 all er) :as i shall not have occasion to refer to these cases again i will say now that so far as they are founded on the principle that gifts exclusively for the purpose of promoting the efficiency of the armed, forces are good charitable gifts, they are, in my opinion, unassailable, but that the decision that the actual gifts were of that nature is more doubtful. it appears to me to be well established that the..........merely constituted for the benefit of the employees in any undertaking cannot be said to be for public benefit within the meaning of s. 2(15) of the i.t. act (hereinafter referred to as 'the act'). therefore, for the same reason, the policemen, who were the employees of the government, cannot be said to be public or a section of the public. therefore, they cannot be exempt from the applicability of the i.t. act. 7. the counter-contentions of sri y. v. anjaneyulu, learned counsel for the assessee, are that there is a distinction between the employees working in private undertakings and the employees working in the government, which is of a public nature. he relied on the decision in cit v. andhra chamber of commerce : [1965]55itr722(sc) and ahmedabad rana caste association v. cit :.....

Judgment:

Seetharama Reddy, J.

1. The question for decision in this reference at the instance of the Revenue, is :

'Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the interest income of Rs. 1,98,791 is exempt from income-tax for the assessment year 1975-76 ?'

2. Before the above question was sought to be referred to this court at the instance of the Revenue, M.P. No. 63/79 was filed by the assessee before the Appellate Tribunal for giving a decision with respect to the sum of Rs. 1,98,791 which accrued as interest out of the principal sum of Rs. 56,97,657 which the Welfare Society-assessee-kept in a bank. This arose because of the fact that earlier in I.T.A.No. 595/79, which pertained to the principal sum which stood in the name of the assessee-society in a bank as a sequel to the raffle conducted on behalf of the society by the Government, one of the issues framed was :

'Whether, on the facts and in the circumstances of the case, and on proper interpretation of section 11, 12 and 13, of the Income-tax Act, the interest income of Rs. 1,98,791 is exempt from income-tax ?'

3. Inasmuch as the Tribunal decided the said I.T.A. on an entirely different aspect, viz., as to whether the amount of Rs. 56,97,657 collected out of a raffle conducted on behalf of the society, was actually conducted by the society or by the State Government, eventually the decision was that the rifle was conducted by the State Government and, therefore, the question of the said corpus being exigible to income-tax did not arise. Consequently, the question of the society being considered whether a charitable trust or not, did not arise. In view of those circumstances, the above referred issue escaped the adjudication of the Tribunal as it was not necessary in the facts and circumstances of the case. Hence, the Appellate Tribunal, dealing with this question in M.P.No. 63/79, held as under :

'From the foregoing discussion it is clear that the policemen would constitute a section of the public or appreciable an important section of the public and trust which was meant for the benefit of the policemen should be treated as a charitable trust. We find ourselves wholly unable to concur with the approach, or the conclusion of the learned Commissioner on the aforesaid point. We, therefore, hold that the impugned sum of Rs. 1,98,791 should not be subjected to assessment for the purpose of income-tax.'

4. Hence, this question under reference to us at the instance of the Revenue.

5. The learned standing counsel for the Revenue, Sri. M. S. N. Murthy, contended, placing reliance on the decision in Oppenheim v. Tobacco Securities Trust Co. Ltd. [1951] AC 297; [1951] 1 All ER 31 Ahmedabad Rana Caste Association v. CIT : [1971]82ITR704(SC) and IRC v. city of Glasgow Police Athletic Association [1953] AC 380; [1953] 1 All ER 747 that the assessee-society cannot be said to be a body formed for the benefit of the public or even a section of the public. It is one of the department of the Government.

6. A trust merely constituted for the benefit of the employees in any undertaking cannot be said to be for public benefit within the meaning of s. 2(15) of the I.T. Act (hereinafter referred to as 'the Act'). Therefore, for the same reason, the policemen, who were the employees of the Government, cannot be said to be public or a section of the public. Therefore, they cannot be exempt from the applicability of the I.T. Act.

7. The counter-contentions of Sri Y. V. Anjaneyulu, learned counsel for the assessee, are that there is a distinction between the employees working in private undertakings and the employees working in the Government, which is of a public nature. He relied on the decision in CIT v. Andhra Chamber of Commerce : [1965]55ITR722(SC) and Ahmedabad Rana Caste Association v. CIT : [1971]82ITR704(SC) . He further contended, inviting our attention to the statutory notification issues by the Central Government under s. 10(23C)(iv) of the Act, whereunder certain funds like Rehabilitation of Ex-Servicemen, Armed Forces Reconstruction Fund, Indian Goorkha Ex-Servicemen Welfare Fund, Jawans Welfare Trust, Maharashtra and so on, have been exempted from income-tax, that inasmuch as the defence services which form part of the Government service and when the Government itself has exempted the funds manned by such services associations, there is no reason why the Police Welfare Society, Andhra Pradesh, should not be given the same benefit.

8. Before adverting to the arguments and contour-arguments, certain relevant material and statutory provisions may be noticed.

9. The assessee-society styled 'The Andhra Pradesh Police Welfare Society' is the successor body to the Police Welfare Society under H.E.H. the Nizwam's Rules, governed by certain bye-laws which came into effect from November 1, 1956.

10. The objects of the society, as per the rules, are as follows : 'The Society will initiate and undertake all social and economic welfare measures aimed at the improvement of the conditions of the members of the A. P. Police and their families to provide suitable amenities to them and to afford relief in all deserving cases where such help is not forthcoming from other governmental and non-governmental agencies, it will administer, the following non-governmental funds.'

11. As per clause (4) of the Rules, the funds of the Society are to be spent on the following programmes :

'1. To enquires into the living conditions of policemen and their families with the a view to promptly arranging for such relief of amelioration as lies within the capacity of the Society and enlisting the co-operation and help of other departments or social agencies in matters needing long-term relief.

2. to grant financial help to the children of policemen for their education.

3. to run milk distribution centers in the police lines.

4. to give vocational training and guidance to the family members of policemen.

5. to visit hospitals where policemen or members of their families are in-patients and make arrangements for their diet and medical aid.

6. to promote the health of the members of the police force and their families by arranging for proper sanitation in the police lines and a periodical medical check-up.

7. to find ways and means of securing costly medicines needed for treatments as gifts or by purchase.

8. to arrange educational facilities for the children residing in the police lines.

9. to open creches.

10. to provide recreational and cultural facilities, instructions in Ambar Charka, tailoring, laundrying and other small scale and cottage industries.

11. to encourage community work by imparting instructions in Ambar Charka, tailoring, laundrying and other small scale and cottage industries.

12. to promote a spirit of sportsmanship among policemen.

13. to provide hostel and other amenities to the orphaned boys and policemen who died while in service or within 3 years of their retirement and

14. to render financial help to widows of the policemen according to the rates prescribed by the bye-laws of the widow fund.'

Rule 9 of the said Rules prescribes the ways and means of raising of the funds required by the Society, as under :

1. By staging benefit performances;

2. By holding cinema shows;

3. By holding tattoo shows;

4. By conducting exhibition football matches at the State Capital or District

Headquarters and other important towns;

5. By obtaining financial assistance from social uplift organisations;

6. By raising subscriptions from the members of the police force at the rates provided by the bye-laws of the concerned fund;

7. By Government grants;

8. By subsidies from the police departmental funds;

9. By contributions from the police departmental co-operative societies out of their common good fund; and

10. By other suitable means consistent with the provisions of the Government Servant's Conduct Rules.

12. It may, however, be stated herein that the conduct of raffle is not one of the modes prescribed under r. 9.

13. Section 2(15) of the Income-tax Act defines 'Charitable purpose' as under :

'Charitable purpose' includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility not involving the carrying on of any activity for profit.

Section 10(23C) of the Act exempts in computing the total income, 'any income received by any person on behalf of -......

(iv) any other fund or institution established for charitable purposes which may be notified by the Central Government in the Official Gazette, having regard to the objects of the fund or institution and its importance throughout India or throughout any State or State or States; or'

14. Section 11 of the Act excludes the income from property held for charitable or religious purposes, from being included in the total income of the assessee for the purpose of assessment.

15. The chief question, therefore, that falls for determination is whether the income of interest arising out of the principal, in the case before us, is held by the charitable trust so as to be exempted from being subjected to income-tax. Therefore, to determine whether a particular body is in the nature of public or charitable trust, or not, has to be judged in the light of the principles evolved over the years by a catena of case law of the Supreme Court as well as of the courts of judicature, aboard. In Oppenheim v. Tobacco Securities Trust Co. Ltd., [1951] AC 297; [1951] 1 All ER 16. 31 Lord Simonds, speaking for the House of Lords, dealing with a situation where a trust was established - 'in providing for or assisting in providing for the education of children of employees or former employees of British-American Tobacco Co., Ltd.....or by any of its subsidiary or allied companies in such manner as the acting trustees think fit', held (p. 34) :

'A group of persons may be numerous, but, if the nexus between them is their personal relationship to a single propositus or to several propositi, they are neither the community nor a section of the community for charitable purposes.

I can make no distinction between children of employees and the employees themselves. In both cases the common quality is found in employment by particular employers. The latter of the two cases to which I first referred, the Hobourn's case [1964] 1 All ER 501 is a direct authority for saying that such a common quality does not constitute its possessors a section of the public for charitable purposes.'

17. Further held (p. 34) :

'It appears to me that it would be an extension, for which there is no justification in principle or authority, to regard common employment as a quality which constitutes those employed a section of the community.' Then while referring to the contentions of he learned counsel for the trust for the education of men employed on the railways by the Transport Board not be charitable And what of service of the Crown, whether in the civil service or the armed forces Is there a difference between soldiers and soldiers of the king ?' help (p. 35) :

'My Lords, I am not impressed by this sort of argument and will consider on its merits, if the occasion should arise, the case where the description of the occupation and the employment is in effect the same, where in a word, if you know what a man does, you know who employs him to do it.'

Then, Lord Simonds referring Lord Hardwtcke, Lord Chancellor's observation in regard to definition of 'charity', viz., 'definition of charity; a gift to a general public use, which extends to the poor as well as to the rich', observed (p. 33) :

'It is a clearly established principle of the law of the charity that a trust is not charitable unless it is directed to the public benefit. This is sometimes stated in the proposition that it must benefit the community or a section of the community.'

18. In the same decision, Lord Normand observed (p. 36) : 'These are private rights and duties and have no public element, except the interest that the community has in the harmonious and efficient operation of its industries and commerce and in the securing of good and safe conditions of labour.' Further observed (p. 37) :

'If there is no public element to be found in the bare nexus of common employment, all attempts to build up the public element out of circumstances which have no necessary relation with it, but are adventitious, accidental and variable, must be unavailing when the trusted has chosen to define the selected class solely by the attribute of common employment.' Also observed (p. 37) : 'If a line must be drawn between public trusts and trusts that are not public, there will always be marginal case and the appearance of over-refinement.'

19. In IRC v. City of Glasgow Police Athletic Association [1953] AC 380; [1953] 1 All ER 747 the Privy Council was concerned with the question whether the fund being raised by a body of persons called 'City of Glasgow Police Athletic Association' established for charitable purposes only, by holding annual athletic sports carried on by them, will be exempt from income-tax. Lord Normand, while giving opinion for the Privy Council, observed (p.749 of [1953] 1 All ER) :

'As I shall not have occasion to refer to these cases again I will say now that so far as they are founded on the principle that gifts exclusively for the purpose of promoting the efficiency of the armed, forces are good charitable gifts, they are, in my opinion, unassailable, but that the decision that the actual gifts were of that nature is more doubtful. I would hold further that gifts or contributions exclusively for the purpose of promoting the efficiency of the police forces and the preservation of public order are by analogy charitable gifts.'

20. In the same case, Lord Reid observed (p. 756 of [1953] 1 All ER) : 'I do not doubt that the purpose of increasing or maintaining the efficient of a police force is a charitable purpose within the technical meaning of those words in English law. It appears to me to be well established that the purpose of increasing the efficiency of the army or a part of it is a charitable purpose.'

'It is well settled that an object beneficial to a section of the public is an object of general public utility. To serve a charitable purpose it is not necessary that the object should be to benefit the whole of mankind or all persons in a country or State. It is sufficient if the intention to benefit a section of the public as distinguished from a specified individual is present. The section of the community sought to be benefited must be sufficiently definite and identifiable by some common quality of a public or impersonal nature.'

22. In the above case, the assessee is an association of persons which held properties for various purposes including management of the movable and immovable properties of the Rana caste or community of the city of Ahmedabad, for improving the education of the community, extending medical help and so on. Under the constitution, the beneficiaries were members of the Rana caste or community, who were natives of Ahmedabad and other members of the community accepted by the caste according to its old custom and usuage and staying in Ahmedabad.

23. In CIT v. Andhra Chamber of Commerce : [1965]55ITR722(SC) , the Supreme Court, explaining the meaning of the expression 'object of general public utility' and the expression 'charitable purpose', held (at pp. 728-729) :

'... the expression charitable purpose'... Even if the object or purpose may not be regarded as charitable in its popular signification as not tending to give relief to the poor or for advancement of education or medical relief, it would still be included' within that expression,'... if it advances an object of general public utility. The expression' object of general public utility',... is not restricted to objects beneficial to the whole of mankind.

An object beneficial to a section of the public is an object of general public utility. To serve a charitable purpose, it is not necessary that the object should be to benefit the whole of mankind or even all persons living in a partitular country or province. It is sufficient is the intention is to benefit a section of the public as distinguished from specified individuals.'

24. Further held (ibid) :

'The section of the community sought to be benefited must undoubtedly be sufficiently defined and identifiable by some common quality of a public or impersonal nature : Where, there is no common quality uniting the potential beneficiaries into a class, it may not be regarded as valid.'

25. Now, coming to the case on hand, in so far as the purposes for which the society is constituted it is quite apparent that they are charitable in nature. In fact, the heirarchy of authorities of the I.T. Department itself observed that they are of charitable nature. Therefore, we unhesitatingly hold that the objects are of charitable character. In fact, the contention which was advanced by the learned standing counsel for Income-tax is mostly with reference to the nature and character of the beneficiaries of the trust, viz., the member of the assessee-society, who are the employees of a section of the Government Department. Therefore, the main thrust was, deriving inspiration from the decision in Oppenheim v. Tobacco Securities Trust Co. Ltd., [1951] AC 297; [1951] 1 All ER 31 that there was no nexus between the propositus and the employees and so it cannot be said to constitute either public or a section of the public. If that be so, the benefit contemplated under the Act cannot be extended. Here we propose to confine ourselves to the question as to whether the members of the assessee-society, who doubtless are the employees of the police department under aegis of the State Government, are entitled to the benefit. So, the immediate question is whether the nexus between the Government, which is said to be the employer and the police personnel, the members of the society, is of personal or impersonal nature. That poses, indeed, an interesting question, which the learned counsel for the assessee, Sri Y. V.Anjaneyulu, very rightly submitted, i.e., there cannot be any analogy between public employment and private employment. Surely, in the case of private employment, such nexus being personal, is conspicuous. But, in so far as public employment is concerned and in particular the Governments formed by, for and of the people is the employer, even if it is to be taken is a restrictive sense, and the employer is the representative of the public or the people. In the ultimate analysis, it is the public that is the employer; qui facit per alium facit per se and so, to the service rendered by the employees in the public employment, the beneficiaries are the public. Testing, therefore, from that angle, the nexus which exists in case or private employment and which is of personal nature, cannot be said to be so in case of public employment. If that be so, in our judgment, the nexus in the case of public employment is its impersonal nature. In fact, we derive considerable assistance in this conclusion from the fact that the armed personnel, who form part of the Government, have been given the benefit under s. 10(23C) of the Act. If, in cases where a fund has been constituted for the benefit of either such armed personnel or their children or their wives, the Central Government has chosen to give expansive definition to s. 10(23C), we see no reason to adopt a restricitve interpretation of the words 'charitable trust' vis-a-vis the personnel in the police department.

26. From the foregoing, therefore, it is quite manifest that the assessee, 'A. P. Police Welfare Society' which is charitable in its objects, as is quite apparent from the very objectives laid down under the rules framed thereunder, is a body that would constitute 'a section of the public' and so, the fund founded for the benefit of such section should be treated as charitable in its object, attracting thereby the exemption from the exigibility to tax. We, therefore, concur with the conclusions arrived at by the Appellate Tribunal.

27. The question under reference is, accordingly, answered in the affirmative; and so, in favour of the assessee. In the result the R.C. is rejected.